New Mexico proposes new rules to rein in predatory lending

SANTA FE, N.M. (AP) — New Mexico has begun rewriting store-front lending regulations under a law designed to bolster consumer protections and cap interest rates for small loans at an annual 175 percent.

Consumer groups said Wednesday the proposed regulations from the New Mexico Financial Institutions Division are a good start that includes some new disclosures of loan provisions by store-front lending businesses and their online counterparts.

Center on Law and Poverty Staff Attorney Lindsay Cutler said the initial round of proposed rules does not address anticipated changes in the consumer complaint process or financial literacy programs that are provisions of the law.

The Financial Institutions Division said it may develop a second round of regulations based on written comments from the public and information gathered at a public hearing scheduled on April 3 in Santa Fe.

The shift in state oversight comes as the federal Consumer Financial Protection Bureau has decided to reconsider a key set of rules enacted last year that would have protected consumers against payday lenders.

There are about 525 registered small-loan outlets in New Mexico, and nearly 100 additional online lenders. The local store-front lending industry has defended triple-digit interest rates as a way to ensure borrowing options for low-income residents in New Mexico, where high poverty and unemployment rates are chronic.

Legislation approved in 2017 by the Democrat-led Legislature and GOP Gov. Susana Martinez contained a variety of consumer protections designed to discourage predatory lending practices. Limits on fees and interest for loans are combined with requirements giving borrowers at least 120 days to repay in at least four installments — effectively eliminating payday loans tied to the next paycheck.

Financial Institutions Division spokeswoman Bernice Geiger said the agency has not found any violations of the new cap on loan interest rates.

Attorney Christopher Sanchez of the Center on Law and Poverty cautioned Wednesday that there is a possibility under the new state law that loans issued prior to Jan. 1 might be renewed indefinitely at interest rates above the 175 percent cap on interest.

Responding to the concern, Geiger said in an email that lenders do not have to change the terms of loans made prior to Jan. 1.

“Of course, borrowers also have the option to refinance their loans at more favorable terms with a different lender,” she said in an email.

The anti-poverty group Prosperity Works is deploying its own volunteers to find out more about compliance and enforcement under the new small-loan law, CEO Ona Porter said.

“The enforcement efforts that we are looking at now — which is actually talking to people as they come out of the stores — will give people a lot of information about how the new law is being implemented,” she said.

Prosperity Works estimates that the state’s new interest-rate will save consumers $500 million in 2018 and 2019. Small loan businesses dispute that estimate and have warned that fewer borrowers will qualify for loans under the new interest-rate cap, as some lenders consolidate stores or go out of business.

Meanwhile, a growing number of local governments in New Mexico have begun offering small-loan alternatives with moderate interest rates for public employees with little or no credit history. The loans are repaid through payroll deductions.

The city of Albuquerque and Bernalillo County recently approved such a loan program for employees in a partnership with the for-profit, San Diego-based lender TrueConnect.

Efforts to provided state workers with similar borrowing opportunities have stalled in the state Legislature.